Property Description: 2-Story townhouse is Cecil county being sold at foreclosure auction. 3 BR/1.5 BA. Unfinished basement. Built in 1972. Currently this is for sale on Ashland Auctions here: https://www.ashlandauction.com/auctions/28188/lot/13407
Bidding ends on 09/03 at 11:00 AM
Comps:
119 Beech Dr, Elkton, MD 21921 – 3BR/2BA/1107sf Sold 11/16/23; Quality: C; $75,550, $68/sf
433 Willow Dr, Elkton, MD 21921 – 3BR/2BA/1400sf Sold 6/10/24; Quality: Unk; $75,000, $53/sf
Retail Resale Value: $70,000-90,000
Market: Elkton homes go under contract within 17 days on average.
Deal analysis assumptions:
| Purchase Price inc Auction Fee | $50,000.00 |
| Closing Costs | $1,500.00 |
| Home SF | 1107 |
| Renovations/Repairs | $16,605.00 |
| Out of Pocket Costs | $68,105.00 |
| Sale | Average | Best Case | Worst Case |
| ARV | $85,000.00 | $89,250.00 | $80,750.00 |
| Current Equity | $85,000.00 | $89,250.00 | $80,750.00 |
| Cost of Renovations | $16,605.00 | $13,284.00 | $19,926.00 |
| Months for Sale (Holding Costs) | 1 | 0.5 | 2 |
| Cost of sale | $5,100.00 | $6,247.50 | $5,652.50 |
| Net Profit | $11,795.00 | $18,218.50 | $3,671.50 |
| ROI | 17.32% | 26.75% | 5.39% |
| Expected Return | 16.49% | $11,228.33 |
If the basement can be finished, which is unlikely, but we will add this to the analysis for consideration. The square footage becomes 1500. Cost to finish a basement has been listed to run $23/sf. Adding this SF would be weakly supported as comps don’t exist for this size and would likely negatively affect the cost per SF of the townhouse. Regardless, assuming $68/sf sales price gives us the following breakdown:
| Sale | Average | Best Case | Worst Case |
| ARV | $112,914.00 | $118,559.70 | $107,268.30 |
| Current Equity | $112,914.00 | $118,559.70 | $107,268.30 |
| Cost of Renovations | $29,335.50 | $23,468.40 | $35,202.60 |
| Months for Sale (Holding Costs) | 1 | 0.5 | 2 |
| Cost of sale | $6,774.84 | $8,299.18 | $7,508.78 |
| Net Profit | $25,303.66 | $35,292.12 | $13,056.92 |
| ROI | 31.30% | 43.66% | 16.15% |
Rental Market Analysis
Elkton Terrace Rental Townhouses at 103 Courtney Dr, Elkton, MD 21921 are $1542/mo for a 3BR, 1100sf townhouse. This assumes a 12-month lease. They charge $25/mo for parking a vehicle. Amenities included:
Water, Sewer, Trash
Other townhomes listed by small investors on Zillow have 3BR, 1200sf homes listed for $1500-$2200/mo.
Keeping the original 1100 SF size and costs associated with finishing at this size and level give us the following Rental income breakdown:
| Monthly | Assumed % | |
| Rent | $1,500.00 | |
| Property Management | $180.00 | 12.00% |
| Vacancy | $150.00 | 10.00% |
| Maintenance | $150.00 | 10.00% |
| CapEx | $150.00 | 10.00% |
| Insurance | $100.00 | 0.04% |
| Property Taxes | $45.02 | 0.006356/$100 |
| Water | $36.07 | |
| Sewer | $72.20 | |
| Trash | $38.33 | |
| Electricity | $0.00 | |
| Expenses Subtotal | $921.62 | |
| Annual % Increase | 2.00% |
| Years | 1 | 5 | 10 | 20 | 30 |
| Investment | $68,105.00 | ||||
| Cash Return | $565.14 | $623.96 | $688.90 | $839.76 | $1,023.67 |
| CoC | 9.96% | 10.99% | 12.14% | 14.80% | 18.04% |
| Annual Equity | $2,220.28 | $2,405.04 | $2,657.76 | $3,245.65 | $3,956.99 |
| Total Return % | 13.22% | 14.53% | 16.04% | 19.56% | 23.85% |
| Total Return $ | $9,001.92 | $9,892.52 | $10,924.54 | $13,322.81 | $16,241.00 |
Incorporating all the anticipated costs of the property, the rental returns start at 13% including the gain in equity. Just looking at the Cash-on-Cash return, we are at nearly 10% with safe assumptions. The 1-year growth in home prices was 6.7% in 2022 in Elkton, MD specifically.
Assumptions about The Community Marketplace
Taking publicly available information from this report, the property information can be picked up. There’s been a significant jump in 2BR home prices, little in 3BR and a significant decrease in larger properties, indicating that the market likes 2-3BR properties. Home sales prices spiked considerably in 2022, where average prices were closer to $250K, but price increase has significantly slowed since then with median sold price is up just 1.3% from last year.
Zillow’s listings show that the market is cool but the rental rates are higher than these projections. The average rental rate was assumed to increase by 3% per year and is in line with the real Year-on-Year rental rate change found on Zillow.
The Deep Dive
Now we’ll look at the macroscopic factors to consider on this property. When looking at external property factors, there are local effects and large area effects.
Looking at the population trends either datausa or US Census, the city’s population is slowly increasing. There is a significant mix of industries in the space with a significant share coming from Health Care and Educational services, retail trade, manufacturing, accommodation and food services, with smaller portions in Finance/Real Estate/Insurance, Professional/Technical/Administrative services, Construction and Public administration as of 2022. The US Census information shows that 4.1% of residents moved into the Elkton District in 2022. Poverty levels are at 15%, higher than the county’s 9%.
In evaluating property trends, there is 48% home ownership with only 58% of homes having a mortgage, indicating a very stable property base for home prices and a good amount of investor activity. There are 6K households in Elkton, MD with a median household income of $58K. With a median household income of $58K, this would mean that the median resident brings in $4,833/mo gross and could qualify for a $1,611/mo rent. 435 Willow Dr would be priced below that at only $1,500 meaning that there would be a good tenant base to rent the property out. Also note that the property in 3BR indicating that the potential future resident likely has kids and will stay for a significant period of time. Note though that the median income is less than the average median income for Cecil County as a whole.
The nearby schools that a child would go to are Cecil Manor Elementary, Cherry Hill Middle, and Elkton High School. They have Great School rankings of 5, 7, and 5. The 5’s hurt this property. Looking at the county’s capital improvement plan, it appears they do not have very safe schools as they not that their goal is safe schools that can help address mental health (good thing), drug and alcohol awareness (indicates drug use in schools), and social-emotional well-being (again, good thing). They are projecting to spend $380M on new schools over the next 5 years including replacing Cherry Hill Middle School in FY30 to FY35. This end date is my assumption. It may be earlier or later depending on the investment and contract. But, this is ~5-10 years out.
Conclusion
In conclusion, on paper, this appears to be a good investment with significant return potential regardless of your exit plans, diverse employment base providing security in the local economy, and improving school system. Additional considerations might be to look at incoming businesses, growing businesses, and new hire wages to determine additional impacts on rental rates and property prices.
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